29 August 2007 Excise Interpretation 92686 - Requirement to be licensed

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

Thank you for your facsimile message XXXXX that was forwarded from XXXXX, of the XXXXX Tax Services Office concerning the application of duties to domestic and imported cigars.

All legislative references are to the Excise Act, 2001, ("the Act") and the regulations therein, unless otherwise specified.

BACKGROUND INFORMATION

XXXXX

Interpretation Requested

You presented some views and calculations relating to the application of excise taxes and duties to domestically manufactured and imported cigars.

Interpretation Given

For your information, we have addressed the application of duty as well as additional duty on domestically manufactured and imported cigars as set out under the Act. It was our sense that XXXXX may have been basing its calculations on older rules that might have been used to calculate the excise tax on cigars under historical legislation.

The legislation that previously imposed the excise tax on cigars under the Excise Tax Act was repealed effective July 1, 2003. The new provisions governing the imposition of duty as well as additional duty on cigars are found under the Excise Act, 2001, which came into force on July 1, 2003.

The rates of duty and additional duty presented below relating to domestically manufactured and imported cigars came into effect July 1, 2006.

(A) DUTY - DOMESTIC & IMPORTED CIGARS

The duty on domestically manufactured and imported cigars is imposed at the rate of $16.60 per 1,000 cigars.

DUTY ON CIGARS - TIMING & LIABILITY

The above-noted duty on cigars is payable:

•   in the case of cigars manufactured in Canada, by the tobacco licensee who manufactured the tobacco products, at the time they are packaged; and

•   in the case of imported cigars, by the importer, owner or other person who is liable under the Customs Act to pay duty (or who would be liable to pay that duty on the tobacco or products if they were subject to that duty).

(B) DOMESTIC CIGARS - CALCULATION OF ADDITIONAL DUTY

The additional duty on cigars manufactured in Canada is calculated as the greater of:

•   $0.066 per cigar, and

•   66%, computed on the "sale price".

The Act provides specific definitions for certain relevant terms. For example, the term "sale price" which needs to be established for purposes of calculating the additional duty on cigars manufactured in Canada, means the total of:

•   the amount charged (i.e., invoice price) for the cigars before GST/HST, plus

•   the amount charged for the cigar container, plus

•   any additional amount paid to you by the purchaser for the cigars (e.g., for advertising, financing, commissions, etc.), plus

•   $16.60 per 1,000 cigars.

(C) IMPORTED CIGARS - CALCULATION OF ADDITIONAL DUTY

The additional duty on imported cigars is calculated as the greater of:

•   $0.066 per cigar, and

•   66%, computed on the "duty-paid value".

For purposes of determining the additional duty on imported cigars, the Act provides that the term "duty-paid value" for imported cigars means:

•   the value of the cigars for purposes of the duty (Whether or not the cigars are subject to duty) (calculated as a % of value) under the Customs Act, plus

•   $16.60 per 1,000 cigars, plus

•   Customs duty; plus

•   the value of the cigar container.

ADDITIONAL DUTY ON CIGARS - TIMING & LIABILITY

The Act provides that the additional duty on cigars is payable:

•   in the case of cigars manufactured and sold in Canada, by the tobacco licensee who manufactured the cigars, at the time of their delivery to a purchaser; and

•   in the case of imported cigars, by the importer, owner or other person who is liable under the Customs Act to pay duty (or who would be liable to pay that duty on the cigars if they were subject to that duty).

CONCLUSION

In conclusion, the total duty to be paid by XXXXX on domestically produced cigars would be the sum of the duty calculated as in (A) above plus the additional duty calculated as in (B) above. In the case of imported cigars, the total duty to be paid by XXXXX would be the sum of the duty calculated as in (A) above plus the additional duty as calculated as in (C) above. To the extent that the "sales price" differs from the "duty-paid value", the amount of the additional duty on cigars may differ between domestic and imported cigars.

The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Goods and Services Tax Rulings, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the Excise Act, 2001, regulations, or our interpretative policy could affect this interpretation.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 941-2348.

Yours truly,

Douglas Wood, BComm, CGA
Rulings Officer
Excise Duty Operations - Tobacco Unit
Excise Duties & Taxes Division
Excise and GST/HST Rulings Directorate

2007/07/05 — RITS 94747 — Canadian Whisky and Excise Duty